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How COBIT helps you achieve SOX Compliance

First released way back in 1996, COBIT has already been around for quite a while. One reason why it never took off was because companies were never compelled to use it ? until now. Today, many CEOs and CIOs are finding it to be a vital tool for achieving SOX compliance in IT.

Thanks to SOX, COBIT (Control Objectives for Information and related Technology) is now one of the most widely accepted source of guidance among companies who have IT integrated with their accounting/financial systems. It has also gained general acceptability with third parties and regulators. But how did this happen?

Role of control frameworks in SOX compliance

You see, the Sarbanes-Oxley Act, despite having clearly manifested the urgency of establishing effective internal controls, does not provide a road map for you to follow nor does it specify a yardstick to help you determine whether an acceptable mileage in the right direction has already been achieved.

In other words, if you were a CIO and you wanted to find guidance on what steps you had to take to achieve compliance, you wouldn’t be able to find the answers in the legislation itself.

That can be a big problem. Two of your main SOX compliance obligations as a CEO or CIO is to assume responsibility in establishing internal controls over financial reporting and to certify their effectiveness. After that, the external auditors are supposed to attest to your assertions. Obviously, there has to be a well-defined basis before you can make such assertions and auditors can attest to anything.

In the language of auditors, this ?well-defined basis? is known as a control framework. Simply put, once you certify the presence of adequate internal controls in your organisation, the external auditor will ask, ?What control framework did you use??

Knowing what control framework you employed will help external auditors determine how to proceed with their evaluations and tests. For your part, a control framework can serve as a guide to help you work towards specific objectives for achieving compliance. Both of you can use it as a common reference point before drawing any conclusions regarding your controls.

But there are many control frameworks out there. What should you use?

How SOX, COSO, and COBIT fit together

Fortunately, despite SOX?s silence regarding control frameworks, you aren’t left entirely to your own devices. You could actually take a hint from the SEC and PCAOB, two of the lead organisations responsible for implementing SOX. SEC and PCAOB point to the adoption of any widely accepted control framework.

In this regard, they both highly endorse COSO, a well-established internal control framework formulated by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). Now, I must tell you, if you’re looking specifically for instructions pertaining to IT controls, you won’t find those in COSO either.

Although COSO is the most established control framework for enterprise governance and risk management you’ll ever find (and in fact, it’s what we recommend for your general accounting processes), it lacks many IT-related details. What is therefore needed for your IT processes is a framework that, in addition to being highly aligned with COSO, also provides more detailed considerations for IT.

This is where COBIT fits the bill.

How COBIT can contribute to your regulatory compliance endeavors

COBIT builds upon and adheres with COSO while providing a finer grain of detail focused on IT. You can even find a mapping between COBIT IT processes and COSO components within the COBIT document itself.

Designed with regulatory compliance in mind, COBIT lays down a clear path for developing policies and good practice for IT control, thus enabling you to bridge the gap between control requirements, technical issues, and business risks.

Some of the components you’ll find in COBIT include:

IT control objectives

These are statements defining specific desired results that, as a whole, characterise a well-managed IT process. They come in two forms for each COBIT-defined IT process: a high-level control objective and a number of detailed control objectives. These objectives will enable you to have a sense of direction by telling you exactly what you need to aim for.

Maturity models

These are used as benchmarks that give you a relative measurement stating where your level of management or control over an IT process or high-level control objective stands. It serves as a basis for setting as-is and to-be positions and enables support for gap analysis, which determines what needs to be done to achieve a chosen level. Basically, if a control objective points you to a direction, then its corresponding maturity model tells you how far in that direction you’ve gone.

RACI charts

These charts tell you who (e.g. CEO, CFO, Head of Operations, Head of IT Administration) should be Responsible, Accountable, Consulted, and Informed for each activity.

Goals and Metrics

These are sets of goals along with the corresponding metrics that allow you to measure against those goals. Goals and metrics are defined in three levels: IT goals and metrics, which define what business expects from IT; process goals and metrics, which define what the IT process should deliver to support It’s objectives; and activity goals and metrics, which measure how well the process is performing.

In addition to those, you’ll also find mappings of each process to the information criteria involved, IT resources that need to be leveraged, and the governance focus areas that are affected.

Everything is presented in a logical and manageable structure, so that you can easily draw connections between IT processes and business goals, which will in turn help you decide what appropriate governance and control is needed. Ultimately, COBIT can equip you with the right tools to maintain a cost-benefit balance as you work towards achieving SOX compliance.

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Top 10 Disadvantages of Spreadsheets

Fraudulent manipulations in company Excel files have already resulted in Billion-Dollar losses. The main underlying reason behind this spreadsheet vulnerability is the inherent lack of controls, which makes it so easy to alter either formulas, values, or dependencies without being detected.


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1. Vulnerable to Fraud

Of all the spreadsheet disadvantages listed here, this is perhaps the most damaging. Fraudulent manipulations in company Excel files have already resulted in Billion-Dollar losses. The main underlying reason behind this spreadsheet vulnerability is the inherent lack of controls, which makes it so easy to alter either formulas, values, or dependencies without being detected.

2. Susceptible to trivial human errors

While fraud will always be a threat to spreadsheet systems, there is a more significant threat that should make you seriously consider getting rid of these outdated systems. And that is its extreme susceptibility to even trivial human errors. Missed negative signs and misaligned rows may sound harmless.

But when they damage investor confidence or cause a considerable loss of opportunity amounting to millions of dollars (Are we serious? Google up ?spreadsheet horror stories? to find out), you should understand that it?s time to move on to better alternatives.

3. Difficult to troubleshoot or test

So how about testing spreadsheets to mitigate the risks of items 1 and 2? Good luck. Spreadsheets just aren?t built for that. It?s not uncommon to have interrelated spreadsheet data scattered across different folders, workstations, offices, or even geographical locations.

Worse, even if you are able pinpoint the locations of every related file, tracing the logic of formulas from one related cell to another can take ages. It?s pretty obvious now how you?ll also encounter a similar problem when troubleshooting questionable data.

4. Obstructive to regulatory compliance

Combine items 1, 2, and 3, and what do you get? A big headache impacting regulatory compliance. There are number of regulations that have a serious impact on the use of spreadsheets.

Some of the many regulations that impact spreadsheet systems include:

And to think it looks like regulatory bodies are just getting warmed up. Over the last two decades, we’ve seen a surge in regulations that directly affect spreadsheet-based systems. Now, you tell me that you haven?t wished there was a better way to beat regulatory compliance deadlines. Well, if you?re still using spreadsheets, then there certainly is a better way.

5. Unfit for agile business practices

We’re now in an age when major changes are shaping and reshaping the business landscape. Mergers and Acquisitions, Management Buyouts, earthquakes, tsunamis, hurricanes, uprisings, climate change, new technologies, and so on. If your business is not agile enough to adapt to such changes, it could easily be left behind or even face extinction.

Spreadsheets are normally created by individuals who have not the slightest know-how regarding software documentation. In the end, spreadsheet files become highly personalised user developed applications. So when it?s time for a new person to take over as part of a large scale business change, the newcomer may have to start from scratch.

Read further about Implementing Large-Scale Business Change

 

6. Not designed for collaborative work

Planning, forecasting, budgeting, and reporting are all collaborative activities. In other words, plans, forecasts, budgets, and reports typically require information from different individuals belonging to different departments. In addition, the final documents are a result of multiple exchanges of data, ideas, and files.

Now, if your company?s offices are scattered throughout the country or if certain team members are separated by large distances, the only way to exchange data stored in spreadsheets is through email.

Experience will tell you that such a method of exchange is susceptible to duplicate and even erroneous data. Team members will tend to find it hard to keep track of similar files going back and forth, and sometimes even end up sending the wrong version.

7. Hard to consolidate

When it comes to simple data entry and quick ad hoc data analysis tasks, spreadsheets are highly favoured by end users. This has made them one of the most ubiquitous office tools on the planet. But as a consequence, data in spreadsheet-based systems are distributed throughout the organisation.

So when it’s time to generate reports, you’ll really have to go through a slow consolidation process. In most cases, end users would have to collect data from different files, summarise them, and submit the same to their department heads through emails, portable storage media (e.g. CDs or USB flash-drives), or by copying to a commonly shared network folder.

Department heads would have to undergo a similar process before submitting them to their own superiors. This has to go on until all the information reaches their organisation’s top decision makers. Throughout the entire consolidation process, data is subjected to numerous error-prone activities such as copy-pasting, cell entry, and range specification.

8. Incapable of supporting quick decision making

In a spreadsheet-based environment, extracting data from different departments, consolidating them, and summarising the information so that it could aid the company’s top brass in making sound decisions can be very time consuming.

And because we know how susceptible spreadsheets are to errors, everyone involved in the information processing has to be ultra careful to keep the integrity of the data intact. Hence it would be prudent to enforce double-checking as much as possible.

This extra but necessary exercise can further delay the process. So, when the final information arrives at the hands of the top executive, he may not have much time to work with. (Read about Business Intelligence)

9. Unsuited for business continuity

As mentioned earlier, data in spreadsheet systems are never kept in a single place. In fact, it’s the exact opposite. The worse thing about it is that they’re always in the hands of non-IT personnel, who are understandably not familiar with storage and backup best practices.

Thus, if a major disaster strikes, full data recovery can be very difficult if not impossible. As a consequence, even if the company has financial reserves, the absence of data (e.g. accounts receivable records, customer records, and inventory) to work on can prevent the company from making a quick restart.

10. Scales poorly

As an organisation grows, data in spreadsheet-based systems get more distributed; subsequently compounding the issues outlined above. It is absolutely not advisable for a large organisation to keep using spreadsheets.

 

More Spreadsheet Blogs

Spreadsheet Risks in Banks

Top 10 Disadvantages of Spreadsheets

Disadvantages of Spreadsheets – obstacles to compliance in the Healthcare Industry

How Internal Auditors can win the War against Spreadsheet Fraud

Spreadsheet Reporting – No Room in your company in an age of Business Intelligence

Still looking for a Way to Consolidate Excel Spreadsheets?

Disadvantages of Spreadsheets

Spreadsheet woes – ill equipped for an Agile Business Environment

Spreadsheet Fraud

Spreadsheet Woes – Limited features for easy adoption of a control framework

Spreadsheet woes – Burden in SOX Compliance and other Regulations

Spreadsheet Risk Issues

Server Application Solutions – Don’t let Spreadsheets hold your Business back

Why Spreadsheets can send the pillars of Solvency II crashing down

 

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Project Management

In a cutthroat market, where the competition is constantly on the attack to break into your market share, implementing a project-based system can give your organisation the necessary tools to be more efficient and agile.

However, rapidly changing consumer demands, technologies and other factors make it ever more difficult to generate a strategic advantage from projects, let alone develop one. Also since a large organisation can easily end up having to manage multiple projects at the same time, the new management paradigm can appear too complex.

What your company really needs is the expertise that can guide you starting from conception and planning, down through procurement and execution in order to maximise whatever resources you have. Each move must be well thought out so that there are clear goals and objectives as well as methods to achieve them.

Programme Management

Are you running multiple projects pointing to an overall strategic direction? Then you’ll need more than just a “scaled-up” version of project management to make sure every component’s work effort is well coordinated to achieve your enterprise’s desired outcomes.

Through our expertise in programme management, we’ll work with your stakeholders, executives and clients to achieve the following:

  • Design a well-articulated management structure and clearly define decision-making roles & responsibilities – This will ensure decisions are made rapidly with zero to minimal overlapping issues and to promote a unified, well-synchronised advance towards the common objective.
  • Set objectives then make sure they are met by guiding your key personnel in coordinating activities across projects.
  • Design or utilise existing financial models such that they adhere to your enterprise’s financial policies.
  • Develop procedures for reporting expenditures specific to the programme.
  • Establish the programme infrastructure, including
    • The appropriate technical environment and tools (e.g. hardware, software, communication, and other IT-related items)
    • IT staff and administrators
  • Evaluate your enterprise’s current IT architecture to determine whether it will suffice to achieve your objectives. If it doesn’t, propose options you can take to meet what is required.
  • Plan out activities that should take place in different levels in the organisation.
  • Implement a periodic review of the programme progress as well as of interim results to ensure everything is aligned with the strategic outcome.

Programme and Project Reviews

Whether we’ve helped you set up your programme or you did it on your own, time will come when you’ll need to know whether everything is going as planned. If it appears like the entire programme is going smoothly, chances are, something’s going awfully wrong somewhere. Remember, even the most well-planned projects and programmes are still under the mercy of unforeseen variables.

We’ve got highly specialised reviews for either projects or an entire programme. We’ll be able to provide you answers to questions like:

  • Are all projects aligned with the programme’s intended direction?
  • Are the people working on your projects as focused with the business rationale as they have been with meeting deadlines and utilising resources?
  • Where are your risks and exposures? How can they be remedied?
  • Is the project viable at all?

We understand how your staff would want to function normally as quickly as possible. Rest assured, our programme and project reviews are conducted swiftly and efficiently so that both interruptions and oversights are brought to a minimum.

After we’re done, you can expect a detailed quantitative assessment of your programme and/or projects’ status.

Basically, we’re not here to find mistakes; we’re here to help you find ways to correct them. If a project rescue is required, we’ll be the first to lend a hand.

Project Rescue

Believe it or not, many of our clients approached us not before or during their project’s planning stages. But rather, after having gone through sloppy execution, when they end up losing control. In other words, we’re usually at the receiving end of the distress signal, after they’ve punched the panic button.

While obviously this isn’t the ideal time to seek the aid of any expert because it means you’ve incurred unnecessary losses already, all is not yet lost. If the appropriate remedial actions are taken in a timely manner, you can still achieve highly acceptable end results.

In fact, in most of our experiences with project rescue operations, we’ve been able to put projects back on track – just the way the planners wanted them to be. We’ll also help you devise airtight strategies to prevent your project from going astray again.

At the end of our project rescue,

  • You’ll regain complete control
  • Milestones will be reached as planned
  • Requirements will be accomplished, and
  • The project will be realigned with ideal business directions

Project Governance Processes

Constructing a firm underlying structure is essential in any organisation. So before we’ll institute project management, we’ll do the following first.

  • Set up a PMO or Project Management Office to ensure, among others, that
    • Utilisation of facilities, budgets, technical support and other resources will be well coordinated
    • Work products can be tracked and reviewed
    • Issues regarding methodology and processes will be given appropriate attention
    • Training can be organised
    • Project management discipline be instilled in the IT department
  • Establish a steering committee to oversee the implementation of IT and business strategies
  • Fill up slots for a project manager, IT executive and a business sponsor and define the roles of each
  • Infuse project management practices to all affected units of the enterprise

Establishing PMOs, steering committees and other management structures is the easy part. Many organisations spend so much in order to create the structures related to project management, only to find out later that the effort has been all for naught. That’s why we won’t end there. Our objectives will therefore include the following:

  • To plant and cultivate an environment appreciative of project governance i.e. one that does not project it as just a bunch of bureaucratic processes and protocols.
  • To establish an organisational culture that starts at the top.
  • To make everyone involved understand that the power of project governance still lies in the hands of those who will ultimately implement it.

A project-driven enterprise is never propelled by a single project. Since multiple projects require a more complex governing structure, you’ll need to understand the intricacies of programme management.

The Connection Between Six Sigma and CRM

Six Sigma is an industrial business strategy directed at improving the quality of process outputs by eliminating errors and system variables. The end objective is to achieve a state where 99.99966% of events are likely to be defect free. This would yield a statistical rating of Sigma 6 hence the name.

The process itself is thankfully more user-friendly. It presents a model for evaluating and improving customer relationships based on data provided by an automated customer relations management (CRM) system. However in the nature of human interaction we doubt the 99.99966% is practically achievable.

Six Sigma Fundamentals

The basic tenets of the business doctrine and the features that set off are generally accepted to be the following:

  1. Continuous improvement is essential for success
  1. Business processes can be measured and improved
  1. Top down commitment is fundamental to sustained improvement
  1. Claims of progress must be quantifiable and yield financial benefits
  1. Management must lead with enthusiasm and passion
  1. Verifiable data is a non-negotiable (no guessing)

Steps Towards the Goal

The five basic steps in Six Sigma are define the system, measure key aspects, analyse the relevant data, improve the method, and control the process to sustain improvements. There are a number of variations to this DMAIC model, however it serves the purpose of this article. To create a bridge across to customer relationships management let us assume our CRM data has thrown out a report that average service times in our fast food chicken outlets are as follows.

<2 Minutes3 to 8 Minutes9 to 10 Minutes>10 Minutes
45%30%20%5%
Table: Servicing Tickets in Chippy?s Chicken Caf?s

Using DMAIC to unravel the reasons behind this might proceed as follows

  • Define the system in order to understand the process. How are customers prioritised up front, and does the back of store follow suit?
  • Break the system up into manageable process chunks. How long should each take on average? Where are bottlenecks most likely to occur?
  • Analyse the ticket servicing data by store, by time of day, by time of week and by season. Does the type of food ordered have a bearing?
  • Examine all these variables carefully. Should there for example be separate queues for fast and slower orders, are there some recipes needing rejigging
  • Set a goal of 90% of tickets serviced within 8 minutes. Monitor progress carefully. Relate this to individual store profitability. Provide recognition.

Conclusion

A symbiotic relation between CRM and a process improvement system can provide a powerful vehicle for evidencing customer care and providing feedback through measurable results. Denizon has contributed to many strategically important systems.?

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  • (+353)(0)1-443-3807 – IRL
  • (+44)(0)20-7193-9751 – UK

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